Emission Trading Scheme advice accepted by government

James Shaw, co-leader of the Green Party, said the recent decision would drive stronger action on reducing carbon emissions. 

The government has reversed a decision on carbon pricing after losing a climate court case and a price collapse.

Climate Minister James Shaw announced the updated decision on the 2023 – 2028 carbon pricing for the Emissions Trading Scheme (ETS) in late July. It came after the government had been ordered by the High Court to reconsider the settings.

ETS settings are adjusted annually and are recommended by the independent Climate Change Commision which was established with bi-partisan support by the Zero Carbon Act 2019.

The Zero Carbon Act sets that the Climate Change Minister must ensure the settings are in line with domestic climate targets and international agreements such as the Paris Climate Accords.

The ETS is a carbon pricing scheme where polluters buy credit for their emissions, as the price for ‘carbon credit’ rises, it incentivises polluters to reduce their emissions or face paying more. Under the ETS, forestry is also considered a carbon sink, and therefore can earn carbon credits incentivising the planting of trees.

Set to come in from the December 2023 auction the ETS will now have a higher auction reserve price and a reduced number of carbon units available for auction.

The Climate Change Minister James Shaw said that the decision would drive stronger action on emissions reduction targets.

“The New Zealand ETS is a key tool for meeting our climate change obligations and for ensuring that those responsible for environmental damage pay to cover the costs” said Shaw.

The ETS faced issues with the price of units being too low in 2021 and 2022, with the government selling 14 million more units then intended, meaning more emissions. The commission had recommended last year that the government raise the price lid from $78 to $171 to reduce the number of units sold.

New Zealand’s 2019 Carbon emmissions released by the Ministry for the Environment.

Lawyers for Climate Action took the government to court when cabinet went against the advice of both the commission and Shaw. The Labour government had been concerned that a rising carbon price would worsen the cost-of-living crisis.

In court the government’s lawyers admitted that the impact of rejecting the advice had not been adequately considered. High Court judge Matthew Palmer ruled that this meant the government was in breach of the Zero Carbon Act.

Shaw said that the judicial review was about the process followed for the 2022 ETS settings decisions, not the decisions themselves.

“The government accepts there were deficiencies in the process and has moved quickly to fix them,” he said.

The pricing decisions comes as the ETS is set to undergo more reforms as the government seeks consultation on the way it operates. The Climate Commission had warned that the ETS was not effectively encouraging companies to reduce emissions, rather making it cheaper to pay for the emissions than invest in ways to reduce them.